Revamping J.C. Penney Systems May Take Longer than a Year

Reporter

It’s only been a quarter into CEO Ron Johnson’s year-long turnaround at J.C. Penney and there’s already concern that the transformation will take longer than planned. Revamping the information technology systems may ultimately be a bigger challenge than current management is anticipating and could take longer than a year, a former J.C. Penney executive told CIO Journal.

“I don’t know that you can execute the IT strategy that’s unfolding in the time frames that are being asked and the manner in which it’s being asked,” said Toby Pennycuff, former senior vice president of information technology at J.C. Penney who left in mid-April as Johnson put his own team in place. Pennycuff spent more than five years at the company and says he’s not a disgruntled former employee. The developers and engineers at J.C. Penney are extremely hard workers, he added.

J.C. Penney’s shares fell after the retailer posted a first-quarter loss after close on Tuesday. Shares closed at $26.75, down 19.72% in trading on Wednesday. Analysts questioned whether the transformation plan, in general, was working. J.C. Penney didn’t respond to a request for comment.

In Tuesday’s conference call with investors, COO Michael Kramer admitted that there were problems with J.C. Penney’s systems. “Our IT infrastructure is a mess,” he said. The retailer runs 492 applications to operate the company and about 88% of them are customized, he said.

In a situation like this, the temptation is to believe vendors when they say they can fix problems, said Pennycuff, who has worked on transformation projects for four large corporations. “Over the past four years, we had been going through core systems and replacing them,” he said. In some cases, replacing core systems that manage customer information or product databases can take longer than a year, he said, and can be costlier than anticipated.

For example, a vendor might give a company a quote of $1 million to $3 million to replace a system but when the integration is finished it’s possible to spend up to $10 million on that system, he said. That’s because systems must talk to one another and the brand-new system must communicate with older custom applications that run on mainframes.

It’s not unusual for companies to need millions of dollars in IT upgrades. On average, companies would need to spend $10.9 million to bring their portfolio of corporate applications up to date, according to a new report released Wednesday. The cost to update corporate applications – and clear the backlog of maintenance – is called IT debt. About $8.5 million of that corporate IT debt comes from applications that run on mainframe computers, according to the survey of 590 CIOs and IT directors worldwide which was conducted by Vanson Bourne and commissioned by Micro Focus.

About 90% of J.C. Penney’s IT budget goes to maintenance, which leaves only 10% for strategic initiatives, said Kramer. In fact, Kramer said that a company of J.C. Penney’s size should need only about 100 applications. The company may try to retire applications so it can save money on maintenance fees and, instead, focus on innovation.

Comments (3 of 3)

@jania, it must be exhausting being so small minded. Gasp, you should shave your head since a homosexual, adulterer or some other sinner cut your hair. Get a life.

11:12 am May 17, 2012

david wrote:

may be if people leaned to spell j.c. penney

12:10 am May 17, 2012

jania wrote:

the reason j.c. penny's is going to the dogs: the day they named ellen degeneres as their spokesperson.
i have not been in a store since this happened & i will not return & evidently i am not the only one.

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